Sales Surge for Home Improvement Contractors

Owners of home improvement companies would probably not have been all that surprised at the prediction offered in the most recent report from the Harvard Joint Center for Housing Studies. The Center’s report, released Jan. 29 and titled “U.S. Home Improvement Industry Outpaces the Broader Housing Recovery,” suggests that “while residential construction is many years away from a full recovery, the home improvement industry could post record-level spending in 2015.”

The Center bases its projection on a stronger economy and housing market; a “stay and improve rather than move” trend—especially among Baby Boomers; state and federal stimulus programs; and a rental market responding to an influx of Millennials by reinvesting in properties to attract new tenants. The Center’s Senior Research Fellow Kermit Baker says that, for all these reasons, he expects the home improvement market to be fully recovered by 2015.

In a Trance

In many markets, home improvement contractors already see sales that are not just strong but are robust and quickly closing in, if not surpassing, 2007 sales. With backlogs mouting, sales and consequent production demand are such that “we are in a trance,” says Michael Damora, sales and marketing manager at K & B Home Remodelers, a roofing, siding, and window contractor in the New Jersey suburbs of New York City. His explanation? “The new normal is: It’s OK to spend money now.”

And the new normal is normal all over. Renewal by Andersen of Alaska is projecting double-digit growth for the year. “We should be growing from $5 million to $6 million,” says co-owner Chris Dunn, of the Anchorage company cited by RBA corporate as its best rural dealer for 2014. The reason cited by Dunn is a simple one: Alaska’s windows are shot. Homes are aging, and windows wear out faster in the state’s tough climate, he says. His company’s aggressive marketing taps right into that.

Pent-up demand is driving sales in the Lower 48 as well. “Last night we signed five contracts,” says Tom Higgins, owner of Superior Products Home Improvements, a Denver home improvement company. All of them are contracts for stone-coated steel roofing. “I’m absolutely writing more quality business than I ever have before,” Higgins says.

In the Chicago suburb of Bensonville roofing, siding, and window company Euro-Tech is looking to build on last year’s 20% jump in sales with an at least equal increase. In 2014, sales of $8.5 million topped the company’s previous record year, 2007, by $30,000 or $40,000, says its president, Fred Finn. This year Euro-Tech plans to blow past the $10 million mark, and with two full months of sales results to look at, things so far are tracking.

Coming Out of Free Fall

Contractors say that, as much as pent-up demand, what is also driving sales is the removal of some factors that restricted business during the post-recession period.

Foreclosures are gone, employment is nearing pre-recession levels, and then there’s credit. In 2009, Finn says, credit was in free-fall.

“The banks had no money and no one even knew if the banks were going to be around,” he says. For companies such as Euro-Tech, where the majority of transactions are financed, that put sales on a starvation diet. Now, with the lending industry flush and increasingly aggressive, homeowners are putting off long-deferred wishes using far more easily obtainable credit. Euro-Tech, for instance, will not only hit a sales target surpassing its 2007 number but will do that with 25% fewer salespeople.

What accounts for that, Finn says, is that “a larger percentage is hitting the board,” that is, there are far fewer credit rejects and contract cancellations. The company is simply keeping a lot more of its gross sales as revenue. To Finn, that says enhanced demand; a more serious, financially stable buyer; and credit scores that embrace a far broader range of consumers applying for loans.

World Turned Upside Down

This story is playing out in many markets among companies selling all manner of home improvement products. Jim Lett, president of A.B.E. Doors & Windows, in Allentown, Pa., says that while his company’s numbers this year won’t top 2008—when A.B.E. Doors was closing in on $5 million—the sales he’s projecting will be only a little bit less than that. “I think people just put it off for a few years,” Lett says. His business—windows, doors, and garage doors—has seen especially strong window replacement sales, driven in part by products built to higher insulating standards and a desire by homeowners to keep the house toasty. “They want the comfort,” Lett says. And he wants the employees needed to keep up with production demand. “I could hire three people right now,” he says.

Hiring people, especially production people, will be the No. 1 management challenge for many home improvement company owners in 2015. “Finding quality labor and being able to retain it,” is how Higgins defines his biggest management concern for 2015.

“I am expecting very, very high demand,” says Brian Elias, president of 1-800-Hansons in Troy, Mich., a roofing, siding, and window company that is one of the industry’s largest. Elias notes that he has seen 20 percent and 30 percent installer price increases and that there are fewer installers in many markets.